The Alternative Investment Fund Managers Directive (AIFMD) significantly changed the European legal and regulatory landscape for hedge fund managers, affecting their ability to market funds in Europe, increasing their compliance burden and imposing new requirements on funds. In a recent interview with the Hedge Fund Law Report, Bill Prew, founder and CEO of INDOS Financial Limited, discussed AIFMD’s practical impact on the hedge fund industry since its introduction in July 2014. This article, the first in a two-part series, sets forth Prew’s thoughts about the effect of AIFMD on hedge fund managers and the ability of managers to market their funds across Europe. In the second installment, Prew will discuss the practical implications of the depositary requirements imposed by AIFMD on hedge fund managers, as well as other industry trends and issues. For additional insight from Prew, see our series on Advise Technologies’ program for non-E.U. hedge fund managers under E.U. private placement regimes: “Guidance for Registering” (Dec. 3, 2015); and “Roadmap for Reporting” (Dec. 10, 2015). For more on AIFMD, see “AIFMD Is Easier for Non-E.U. Hedge Fund Managers Than Commonly Anticipated” (Oct. 22, 2015). Read full article …

The Bipartisan Budget Act of 2015 (2015 Budget Act) repealed the long-standing “TEFRA” (Tax Equity and Fiscal Responsibility Act of 1982) rules, small partnership exception and electing large partnership rules. In their place, the 2015 Budget Act streamlines the rules governing federal income audits and judicial proceedings involving partnerships into a single set of rules that generally apply at the partnership level, subject to a limited electable exception. This new “streamlined audit approach” is expected to facilitate IRS audits of large partnerships, including hedge funds and other private funds, starting in 2018. In a two-part guest series, David A. Roby, Jr., a partner at Sutherland Asbill & Brennan, explores the streamlined audit approach and its implications for hedge fund and other private fund managers. This second part examines how the revised partnership audit rules will impact hedge funds and other private funds. The first part discussed current partnership tax principles and audit procedures and explored the reasons for revising the applicable rules. For insight from Roby’s colleague Yasho Lahiri, see our two-part series “How Can Hedge Fund Managers Market Their Funds Using Case Studies Without Violating the Cherry Picking Rule?”: Part One (Dec. 5, 2013); and Part Two (Dec. 12, 2013). Read full article …

As the number of new investment advisers and investment companies continues to increase, the duties of the Office of Compliance Inspections and Enforcement (OCIE) – the “eyes and ears” of the SEC – grows more complex. While deploying additional resources to examine hedge fund managers and other investment advisers, OCIE must prioritize and focus on select areas. OCIE’s current initiatives and priorities were discussed during a recent day-long seminar hosted by the SEC as part of its Compliance Outreach Program. Participating in the seminar were senior personnel from the Division of Enforcement (Enforcement), Division of Investment Management (IM) and OCIE. Opening with remarks by SEC Chair Mary Jo White, the program was hosted by Andrew Ceresney, Director of Enforcement; David Grim, Director of IM; and Marc Wyatt, Director of OCIE. This two-part series highlights the key insights from those presentations. This first part discusses SEC initiatives, including the Compliance Outreach Program itself, and also explores OCIE’s characteristics, current campaigns and examination priorities. The second part will examine the priorities and operations of each of Enforcement and IM. For more on OCIE, see “OCIE Outlines Examination Priorities for 2016” (Jan. 14, 2016); “SEC’s Rozenblit and Law Firm Partners Explain the SEC’s Enforcement Priorities and Offer Tips on How Hedge Fund and Private Equity Managers Can Avoid Enforcement Action (Part Three of Four)” (Jan. 15, 2015); and “OCIE Director Andrew Bowden Identifies the Top Three Deficiencies Found in Hedge Fund Manager Presence Exams and Outlines OCIE’s Examination Priorities” (Oct. 10, 2014). Read full article …

The new Reserved Alternative Investment Fund (RAIF) structure unveiled by Luxembourg offers U.S. managers a flexible new option for marketing in the E.U. In addition, the structure allows U.S. managers to take advantage of certain tax benefits. Thus, the RAIF is a game changer for hedge fund managers and can also be a useful vehicle for real estate and private equity funds. At a recent presentation, the Association of the Luxembourg Fund Industry (ALFI) provided a comprehensive overview of the business, tax and regulatory ramifications of the RAIF. This second article in our two-part series explores opportunities presented by RAIFs for U.S. managers – including hedge fund, real estate and private equity managers – as well as tax considerations of the new fund structure. The first article summarized the panel’s discussion of the Luxembourg funds landscape and the key features of RAIFs. For more on the marketing options presented by Luxembourg fund structures, see “Luxembourg Financial Regulator Issues Guidance on AIFMD Marketing and Reverse Solicitation” (Sep. 3, 2015); and “How Can Hedge Fund Managers Use Luxembourg Funds to Access Investors and Investments in Europe, Asia and Latin America?” (Jul. 12, 2012). Read full article …

The Financial Stability Oversight Council (FSOC) recently issued a report focusing on potential systemic risks posed by hedge funds and others in the asset management industry. The report considers potential risks caused by liquidity and redemption; leverage; operational functions; securities lending; and transition planning and resolution. This article summarizes FSOC’s findings and recommendations for evaluating and mitigating those risks. In a public statement, SEC Chair Mary Jo White commended FSOC’s work on the report, noting the significant overlap between FSOC’s work and rules proposed by the SEC in 2015. See “Current and Former Directors of SEC Division of Investment Management Discuss Hot Topics Under the Investment Company Act” (Mar. 10, 2016). She cautioned, however, that the FSOC report “should not be read as an indication of the direction that the SEC’s final asset management rules may take.” See also “SEC Chair Highlights Two Types of Risks Hedge Fund Managers Must Consider” (Oct. 29, 2015). For analysis of the ongoing debate in the U.K. about the systemic risk posed by hedge funds and other asset managers, see “Focus on Hedge Fund Managers and Market Liquidity May Be Overemphasized, Argues FCA Director” (Mar. 31, 2016); and “European Central Bank Official Regards Hedge Fund Leverage As Risk to Financial System” (Mar. 24, 2016). Read full article …

Investors base high-stakes decisions on hedge fund marketing materials, disclosure documents and investment mandates, so it is imperative for hedge fund managers to ensure that those documents accurately and clearly describe the funds’ operations. In a recent thematic review, the U.K. Financial Conduct Authority (FCA) assessed whether U.K.-authorized investment funds and segregated mandates are operating in line with investor expectations set by marketing and disclosure materials. While managers generally ensure that their behavior lines up with disclosure, the FCA found room for them to improve and exercise vigilance in managing investor expectations. This article enumerates the FCA-recommended practices for asset managers to ensure that product descriptions are clear and correct, fund governance is effective for the life of the product and distribution channels are adequately monitored. For additional insight from the FCA, see “FCA 2016-2017 Regulatory and Supervisory Priorities Include Focus on AML, Cybersecurity and Governance” (Apr. 14, 2016); “FCA Expects Hedge Fund Managers to Focus on Liquidity Risk” (Mar. 3, 2016); and “FCA Report Enjoins Hedge Fund Managers to Improve Due Diligence” (Feb. 25, 2016). Read full article …

Seward & Kissel has announced the addition of Ivy Wafford Duke in its Washington, D.C., office as counsel in the investment management practice group. In addition to her work on matters relating to the Investment Company Act of 1940, Duke has broad experience with all registered investment adviser and broker-dealer legal and regulatory matters, including SEC compliance, as well as Municipal Securities Rulemaking Board, FINRA, Blue Sky state filings and state regulatory organizations regulations. For insight from Seward & Kissel attorneys, see our two-part series on the firm's private funds forum: “Trends in Hedge Fund Seeding Arrangements and Fee Structures” (Jul. 23, 2015); and “Key Trends in Fund Structures” (Jul. 30, 2015); as well as “The First Steps to Take When Joining the Rush to Offer Registered Liquid Alternative Funds” (Nov. 6, 2014). Read full article …

Lowenstein Sandler recently welcomed Ethan L. Silver as chair of its broker-dealer practice and a partner in its investment management practice. Silver specializes in representing broker-dealers, asset managers and other financial institutions. He represents broker-dealers in regulatory, enforcement and other compliance matters related to federal and state securities laws and the rules of various self-regulatory organizations, including FINRA. For insight from Lowenstein partner Matthew A. Magidson, see “A Practical Guide to the Implications of Derivatives Reforms for Hedge Fund Managers” (Jul. 25, 2013). Read full article …